Tourists are seen at a duty free shop in Seoul, Monday. Yonhap

The duty free industry, which was severely affected by the COVID-19 pandemic, is still struggling to recover despite an increase in international tourists following the transition to an endemic phase last year.

Industry officials attributed the continued business slump to high won-dollar exchange rates and changes in tourism trends, among others.

According to the Korea Duty Free Shops Association, Sunday, duty free shops marked about 7.4 trillion won ($5.4 billion) in sales in the first half of this year, a 13.6 percent increase from 6.5 trillion won recorded in the same period last year.

This increase, however, is modest considering the 45.6 percent rise in the number of customers, which grew from 9.5 million to 13.8 million during the same period.

As a result, the per capita spending, calculated by dividing the total sales revenue by the number of customers, decreased by 22 percent, dropping from 686,000 won to 535,000 won.

The figures are taken seriously as duty free shopping has not seen a corresponding increase despite travel demand recovering to more than 90 percent of the pre-pandemic level in 2019.

The number of customers during the first half of this year was only 57 percent of the 24 million in 2019. Of them, the number of domestic customers decreased by 36.2 percent, while the number of foreign customers fell by 54 percent.

Previously, tour groups from China accounted for a significant portion of duty free sales. But there has been a trend shifting from group tours to individual travel.

“In the past, large groups of Chinese tourists visited duty free shops together and purchased high-end goods in bulk. However, the travel trend has shifted as there are more individual travelers,” an industry official said.

“These individual travelers prefer using subways and buses for flexible travel and often engage in low-cost shopping at places like Olive Young or Daiso, rather than duty free shops.”

Additionally, with the continued high won-dollar exchange rates, the price competitiveness of duty free shops has weakened for domestic customers.

Amid these conditions, the burden of labor expenses, airport rental fees and marketing costs for duty free shops has increased, leading to a deterioration in profitability.

Lotte Duty Free, the industry's top player, posted an operating profit of 41.6 billion won in the first half of last year but turned to an operating loss of 46.3 billion won in the first half of this year.

Similarly, operating profits of the Shilla Duty Free and Shinsegae Duty Free fell by 83.8 percent and 75.5 percent, respectively.

Amid a growing sense of crisis, Lotte Duty Free declared a state of emergency management in June and has since embarked on a rigorous restructuring to reduce costs. Recently, the company has also launched a voluntary retirement program as part of efforts to streamline the workforce.

Other duty free shops are also implementing cost-cutting measures, such as reorganizing business units and slimming down their organizational structures.